Commission backs Dexia bail-out

A plan by France and Belgium to restructure ailing bank Dexia, including a recapitalisation with €4.5 billion, has gained the approval of the European Commission.

The plan in effect nationalises the bank, as France and Belgium will hold close to 96% of Dexia's capital. Belgium, France and Luxembourg will also provide guarantees to creditors.

Once the world's largest municipal lender, Dexia had to be bailed out in 2008 to avoid complete failure.

Belgium nationalised Dexia's retail operations in the country in October 2011, injecting €4bn into what is now known as Belfius.

In France, Dexia's lending operations will be transformed into a development bank for local authorities and public services, with support from the government, the Caisse des Depots et Consignations (CDC) and France's postal bank.

Joaquín Almunia, the European commissioner for competition policy, said in a statement released today (28 December): "As foreseen by our rules, the approved plan ensures that the continued market presence of some parts of the Dexia group is truly justified, without artificially keeping alive a failed business model, and that competition distortions resulting from the aid received are minimized."

Almunia also said that the plan would keep costs for the taxpayers at "the level strictly necessary to carry out the orderly resolution process".